Subscription business model: Difference between revisions

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{{Original research|date=June 2020}}

{{redirect|Subscription|the subscription process for shares etc.|Subscription (finance)|its use in religion|Confessional subscription}}

The '''subscription business model''' is a [[business model]] in which a [[customer]] must pay a recurring price at regular intervals for access to a [[Product (business)|product]] or [[Service (business)|service]]. The model [[Publication by subscription|was pioneered]] by publishers of [[book]]s and [[periodical]]s in the 17th century,.<ref>{{Citation |last1 = Clapp |first1 = Sarah L. C. |title = The Beginnings of Subscription Publication in the Seventeenth Century |journal = Modern Philology |volume = 29 |issue = 2 |pages = 199–224 |publisher = The University of Chicago Press |___location = Chicago |date = November 1931 |jstor = 433632 |doi = 10.1086/387957 |s2cid = 162013335 }}</ref> andIt is nowparticularly usedcommon bynow manyfor businessesdigital products, websiteswhich lend themselves more naturally toward a subscription model.<ref name=":2">{{Cite webjournal |last=BarseghianEinav |first=AlexLiran |titlelast2=CouncilKlopack Post:|first2=Ben What's|last3=Mahoney Behind|first3=Neale The|date=2025 Rise|title=Selling OfSubscriptions The Subscription Model?|url=https://www.forbesaeaweb.comorg/sites/forbestechcouncil/2019/08/12/whats-behind-the-rise-of-the-subscription-modelarticles?id=10.1257/aer.20231612 |access-datejournal=2021-01-13|website=ForbesAmerican Economic Review |language=en |archive-datevolume=2021115 |issue=5 |pages=1650–1671 |doi=10.1257/aer.20231612 |issn=0002-12-288282 |archive-url=https://web.archivestanford.orgedu/web~leinav/20211228070023pubs/https://www.forbesAER2025.com/sites/forbestechcouncil/2019/08/12/whatspdf |archive-behind-the-rise-of-the-subscription-model/date=April 30, 2025|url-statusaccess=livesubscription }}</ref> and even pharmaceutical companies in partnership with the government.

Subscriptions can be a more convenient, hassle-free transaction for consumers.<ref name=":2" /> However, due to inertia among some consumers, they may inadvertently pay for subscriptions that they no longer value because they do not realize that they are subscribed.<ref name=":2" />

==Subscriptions==

Rather than selling products individually, a subscription offers periodic (daily, weekly, bi-weekly, monthly, semi-annual, yearly/annual, or seasonal) use or access to a product or [[Service (economics)|service]], or, in the case of performance-oriented organizations such as [[List of opera companies|opera companies]], tickets to the entire run of some set number of (e.g., five to fifteen) scheduled performances for ana entirewhole season. Thus, a one-time sale of a product can become a recurring sale and build [[brand loyalty]].<ref name=":1" />

Industries that use this model include [[mail order]] [[book sales club]]s and [[music]] sales clubs, private [[web mail]] providers, [[cable television]], [[satellite television]] providers with [[pay television]] channels, providers with digital catalogs with downloadable music or eBooks, audiobooks, [[satellite radio]], [[Telephone company|telephone companies]], [[mobile network operator]]s, internet providers, [[software publisher]]s, [[website]]s (e.g., [[blogging]] websites), business solutions providers, [[financial services]] firms, [[health club]]s, lawn mowing and snowplowing services, [[pharmaceutical]]s, renting an apartment, property taxes, as well as the traditional newspapers, magazines, and [[academic journal]]s.

Renewal of a subscription may be periodic and activated automatically so that the cost of a new period is automatically paid for by a pre-authorized charge to a [[credit card]] or a checking account. A common variation of the model in online games and on websites is the ''[[freemium]]'' model, in which the first tier of content is free,. butStill, access to premium features (for example, game power-ups or article archives) is limited to paying subscribers.<ref>{{Citation | year=2023 | title=What is the SaaS Subscription Revenue Model? | url=https://whop.com/blog/saas-subscription-revenue/ | access-date=10 November 2023}}</ref>

In addition to the freemium model, there are other subscription pricing variations are gaining traction. For instance, the tiered pricing model is frequently used in software as a service (SaaS) platforms, offering customers different access levels of access and features based on their subscription tier. This model is particularly effective for tailoring services to customer requirements. Another approach is the usage-based pricing model, which calculates charges based on the extent of service or product utilization by the customer. This model is becoming increasingly prevalent, especially in services where customer usage canvaries significantly vary.<ref>{{Citation | year=2023 | title=Pricing Models for Software – How to Choose the Right One | url=https://www.growthlead.co/pricing-models-for-software/ | access-date=26 November 2023}}</ref>

===Types and examples===

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** Periodicals, such as a newspaper or magazine, have several types of subscriptions:

*** [[Magazine#Paid circulation|Paid circulation]]

*** [[Magazine#Non-paid circulation|Non-paid circulation]]

*** [[Magazine#Controlled circulation|Controlled circulation]]

** [[Subscription box]]es contain a variety of consumables

*** [[Community-supported agriculture]]

*** [[Meal delivery service]]

*** [[Meal kit]] delivery service

*A subscription for unlimited use of a service or collection of services. Usage may be personal and non-transferable, for a family, or, under certain circumstances, for a group utilizing a service at one timesimultaneously. In the publishing industry, a subscription to a bundle of several journals, at a discounted price, is known as a "big deal".<ref>{{cite book|author=Sally Morris |display-authors=etal |title= Handbook of Journal Publishing|year= 2013|publisher=Cambridge University Press|isbn=978-1-107-02085-6 |pages=163–164 }}</ref>

** [[Software as a service]]

*A [[wikt:pay-as-you-go|pay-as-you-go]] subscription where a consumer subscribes to purchase a product periodically. This is also known as the convenience model because it is a convenienceconvenient for the customer not to not have to remember to go find their product and buy it periodically. This model has been popularized by companies like Dollar Shave Club, [[Birchbox]], and OrderGroove. Based on their success, many other retailers have begun to offer subscription model services.<ref>[https://thoughts.manthan.com/2015/07/16/retail-subscription-models-whos-doing-what-expert-round-up/ Retail Subscription Models — Expert Round-up]. {{Webarchive|url=https://web.archive.org/web/20180917034419/https://thoughts.manthan.com/2015/07/16/retail-subscription-models-whos-doing-what-expert-round-up/|date=2018-09-17}}.<span> Retail Subscription Models! Who's doing what? [EXPERT ROUND-UP</span></ref>

** For example, a company's subscription to a rail pass by a company may not be individualized but might permit all firm employees of that firm to use the service. ForSubscriptions of this type are rare for goods with an unlimited supply and for many luxury services, subscriptions of this type are rare.

*A subscription for basic access or minimal service plus some additional charge depending on usage. A basic telephone service pays a pre-determined fee for monthly use. butStill, it may have extra charges for additionalother services such as long-distance calls, directory services, and pay-per-call services. When the basic service is offered free of charge, this business model is often referred to as [[Freemium]].

*An online subscription for supportingsupports content creators using [[crowdfunding]]. Fans can interact and send a tiptips to the content creator but also have access to exclusive paid content. Popular examples are [[Patreon]] and [[OnlyFans]].

===Publishing===

In publishing, the subscription model typically involves a [[Paywallpaywall]], [[Paysitepaysite]], or other "toll-access" system (named in opposition to [[open access]]). As revenues from digital advertising diminish, a paid subscription model is being favoured by more publishers who see it as a comparatively stable income stream.<ref>{{Cite web|url = https://digiday.com/media/churn-and-burn-publishers-with-surging-subscriptions-paradoxically-left-vulnerable-to-revenue-shortfalls/|title = 'Churn and burn': Publishers are prioritizing subscription volume over immediate revenue|date = 15 June 2020|access-date = 23 September 2021|archive-date = 11 September 2021|archive-url = https://web.archive.org/web/20210911222051/https://digiday.com/media/churn-and-burn-publishers-with-surging-subscriptions-paradoxically-left-vulnerable-to-revenue-shortfalls/|url-status = live}}</ref>

== Academic journals ==

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In the field of [[academic publishing]], the subscription business model means that articles of a specific [[academic journal|journal]] or [[academic conference|conference proceedings]] are only available to subscribers. Subscriptions are typically sold to [[universities]] and other [[higher education institution]]s and [[research institute]]s, though some academic publishers also sell individual subscriptions or access to individual articles.

In contrast with other media such as [[newspaper]]s, subscription fees to academic publishers generally do not go towards supporting the creation of the content: the scientific articles are written by scientists and [[peer review|reviewed]] by other scientists as part of their work duties. The paperpublisher authorsdoes andnot reviewerspay arethe notpaper paidauthors byand the publisherreviewers. In this light, the subscription model has been called undesirable by proponents of the [[open access]] movement.

Academic publications whichthat use the subscription model are called "closed-access", byin opposition to their open-access counterparts.

==Effects==

===Vendors===

Businesses benefit because they are assured a predictable and constant revenue stream from subscribed individuals for the duration of the subscriber's agreement. Not only does this greatly reduce uncertainty and the riskiness of the enterprise, but it often provides payment in advance (as with magazines, and concert tickets), while allowing customers to become greatly attached to using the service and, therefore, more likely to extend by signing an agreement for the next period close to when the current agreement expires.<ref name=":1">{{citationCite web |last=BlackCurve needed|date=March 9, 2016 |title=The Power of Subscription Pricing |url=https://blog.blackcurve.com/the-power-of-subscription-pricing |access-date=January 20219, 2024 |website=BlackCurve}}</ref>

AnIn an integrated [[Software release life cycle|software]] solutionssolution, for example, the subscription pricing structure is designed so that the revenue stream from the recurring subscriptions is considerably greatermore significant than the revenue from simple one-time purchases. In someSome subscription schemes (like magazines), it also increasesincrease sales, by not givingallowing subscribers the option to accept or reject any specific issue. This reduces customer acquisition costs, and allows [[personalized marketing]] or [[database marketing]]. However, a requirement of the system isrequires that the business must have in place an accurate, reliable, and timely way to manage and track subscriptions.

From a marketing-analyst perspective, itthe vendor has the added benefit that the vendorof knowsknowing the number of currently active members since a subscription typically involves a contractual agreement. This so-called 'contractual' setting facilitates [[customer relationship management]] to a large extent because the analyst knows who is an active customer and who recently churned.<ref>{{cite journal |url=http://econpapers.repec.org/paper/rugrugwps/05_2F348.htm |author=J. Burez & Dirk Van den Poel |title=CRM at a Pay-TV Company: Using Analytical Models to Reduce Customer Attrition by Targeted Marketing for Subscription Services |journal=Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium |year=2006 |publisher=econpapers.repec.org |access-date=2007-01-07 |archive-date=2007-03-03 |archive-url=https://web.archive.org/web/20070303002903/http://econpapers.repec.org/paper/rugrugwps/05_2F348.htm |url-status=live }}</ref>

Additional benefits include a higher average [[customer lifetime value]] (ACLV) than that of nonrecurring business models, greater customer inertia and a more committed customer base as it transitions from purchase to opt-out decisions, and more potential for upselling and cross-selling other products or services.<ref>{{Citation | title = Subbly.co: Best Practices for Online Business Models | url = http://www.subbly.co/blog/10-best-practices-for-online-subscription-business-models/ | access-date = 9 July 2014 | archive-date = 24 August 2017 | archive-url = https://web.archive.org/web/20170824181102/http://www.subbly.co/blog/10-best-practices-for-online-subscription-business-models/ | url-status = live }}</ref>

Some software companies such as [[Adobe (company)|Adobe]] and [[Autodesk]] have moved from a perpetual licensing model to a subscription model, known as "[[software as a service]]". This move has significant implications for sales and customer support organizations. Over time, the need to close large deals decreases, resulting in lower sales costs. However, the size of the customer support organization increases so that the paying customers stay happy.<ref>{{Citation | title = Software Pricing Trends | url = https://www.pwc.com/us/en/technology-innovation-center/assets/softwarepricing_x.pdf | access-date = 14 August 2016 | archive-date = 27 August 2016 | archive-url = https://web.archive.org/web/20160827131306/https://www.pwc.com/us/en/technology-innovation-center/assets/softwarepricing_x.pdf | url-status = live }}</ref>

===Customers===

Consumers may find subscriptions convenient if they believe that they will buy a product on a regular basisregularly and that they might save money. ForThe customer saves time for repeated delivery of the product or service,.<ref thename=":1" customer also saves time./>

Subscriptions which exist to support clubs and organizations call their subscribers "members" and they are given access to a group with similar interests. An example might be the Computer Science Book Club.{{citation needed|date=January 2021}}

Subscription pricing can make it easier to pay for expensive items since it can often be paid for over a period of time and thus can make the product seem more affordable. On the other hand, most newspaper and magazine-type subscriptions are paid upfront, and this might actually prevent some customers from subscribing. Fixed price may be an advantage for consumers using those services frequently. However, it could be a disadvantage to a customer who plans to use the service frequently but later does not. The commitment to paying for a package may have been more expensive than a single purchase would have been. In addition, subscription models increase the possibility of [[vendor lock-in]], which can have fatally business-critical implications for a customer if its business depends on the availability of a software: For example, without an online connection to a licensing server to verify the licensing status every once in a while, a software under a subscription-model would typically stop functioning or fall back to the functionality of a freemium version, thereby making it impossible (to continue) to use the software in remote places or in particularly secure environments without internet access, after the vendor has stopped supporting the version or software, or even has gone out of business thereby leaving the customer without a chance to renew the subscription and access his own data or designs maintained with the software (in some businesses it is important to have full access even to old files for decades). Also, consumers may find repeated payments to be onerous.

Subscriptions which exist to support clubs and organizations call their subscribers "members" and they are given access to a group with similar interests.<ref An example might be the Computer Science Book Club.{{citation needed|datename=January":1" 2021}}/>

Subscription models often require or allow the business to gather substantial amounts of information from the customer (such as magazine mailing lists) and this raises issues of [[privacy]].

Subscription pricing can make it easier to pay for expensive items since itthey can often be paid for over a period of time and thus can make the product seem more affordable. On the other hand, most newspaper and magazine-type subscriptions are paid upfront, andwhich this might actuallymay prevent some customers from subscribing. Fixed priceprices may be an advantage for consumers usingwho frequently use those services frequently. However, it could be a disadvantage to a customer who plans to use the service frequently but later does not. The commitment to paying for a package may have been more expensive than a single purchase would have been. In addition, subscription models increase the possibility of [[vendor lock-in]], which can have fatally business-critical implications for a customer if its business depends on the availability of a software: For example, without an online connection to a licensing server to verify the licensing status every once in a while, a software under a subscription-model would typically stop functioning or fall back to the functionality of a freemium version, thereby making it impossible (to continue) to use the software in remote places or in particularly secure environments without internet access, after the vendor has stopped supporting the version or software, or even has gone out of business thereby leaving the customer without a chance to renew the subscription and access his own data or designs maintained with the software (in some businesses it is important to have full access even to old files for decades). Also, consumers may find repeated payments to be onerous.<ref name=":1" />

A subscription model may be beneficial for the software buyer if it forces the supplier to improve its product. Accordingly, a psychological phenomenon may occur when a customer renews a subscription, that may not occur during a one-time transaction: if the buyer is not satisfied with the service, he/she can simply leave the subscription to expire and find another seller.<ref name=":0">{{cite web |url=http://news.cnet.com/2100-1012-5169536.html |author=Alorie Gilbert |title=Software Execs Bash Their Industry's Approach |publisher=news.com.com |date=March 3, 2004 |archive-url=https://archive.today/20120527035007/http://news.cnet.com/2100-1012-5169536.html |archive-date=May 27, 2012 |url-status=dead }}</ref>

Subscription models often require or allow the business to gather substantial amounts of information from the customer (such as magazine mailing lists), and this raises issues of [[privacy]].<ref name=":1" />

This is in contrast to many one-time transactions when customers are forced to make significant commitments through high software prices. Some feel that historically, the "one-time-purchase" model does not give sellers incentive to maintain relationships with their customers (after all, why should they care once they've received their money?). Some who favor a subscription model for software do so because it may change this situation.{{Citation needed|reason=Reference to this theory or any literature |date=August 2022}}

A subscription model may be beneficial forbenefit the software buyer if it forces the supplier to improve its product. Accordingly, a psychological phenomenon may occur when a customer renews a subscription, that may not occur during a one-time transaction: if the buyer is not satisfied with the service, he/she can simply leave the subscription to expire and find another seller.<ref name=":0">{{cite web |url=http://news.cnet.com/2100-1012-5169536.html |author=Alorie Gilbert |title=Software Execs Bash Their Industry's Approach |publisher=news.com.com |date=March 3, 2004 |archive-url=https://archive.today/20120527035007/http://news.cnet.com/2100-1012-5169536.html |archive-date=May 27, 2012 |url-status=dead }}</ref>

The subscription model should align customer and vendor toward common goals, as both stands to benefit if the customer receives value from the subscription. The customer that receives value is more likely to renew the subscription and possibly at an increased rate. The customer that does not receive value will, in theory, return to the marketplace.{{Citation needed|reason=Reference to this theory or any literature |date=August 2022}}

===Environment===

Because customers may notonly need or want allsome of the items received, this can lead to waste and an adverse effect on the environment, depending on the products. Greater volumes of production, greater energy and natural [[resource consumption]], and subsequently greater disposal costs are incurred.{{Citation needed|reason=Reference to this theory or any literature |date=August 2022}}

Subscription models might also create the opposite effect. This can be illustrated by subscribing to a service for mowing lawns. The effective use of a single mower increases when mowing for a collection of homes,; instead of every family owning their owna lawnmower whichthat is not used as much as the service -providing mower, the use of resources for producing lawnmowers, therefore, decreases while lawns stay cut.{{Citation needed|reason=Reference to this theory or any literature |date=August 2022}}

==See also==